Nepal Rastra Bank (NRB) on Sunday issued a Letter of Intent (LoI) to Emerging Nepal to establish Infrastructure Development Bank (IDB) which will focus on financing mega infrastructure projects.

The IDB will be Nepal’s first infrastructure bank. It has nearly 40 promoters. NRB gave the go-ahead in principle after the IDB deposited 50 percent of its Rs20 billion paid-up capital. This allows it to proceed with setting up the infrastructure. The IDB is expected to start operations in six months.

The new bank will be able to make equity investments in infrastructure development projects and open letters of credit to import equipment required by them. Similarly, the bank can issue domestic and foreign currency bonds, mobilize long-term deposits and issue debentures to mobilize financial resources for infrastructure projects.

NRB spokesperson Narayan Prasad Paudel said the central bank agreed in principle to the establishment of the IDB. The central bank allowed it to proceed with the establishment process after it deposited 45 percent of the paid-up capital in six commercial banks. It deposited 5 percent of the paid-up capital during the application phase, he said.

After receiving the LoI from the central bank, the IDB has to register as a public limited company with the Office of the Company Registrar within the next six months. “In addition, the bank needs to manage the logistics besides developing the necessary software and appointing senior officials.

“NRB will then carry out an inspection of the financial institution before issuing the operating licence,” Paudel said.

The budget statement for the current fiscal year has envisioned opening the IDB as a public-private partnership. “The establishment of the Infrastructure Development Bank, which was initiated in the current fiscal year with the participation of national and international banks in order to increase private and foreign investment in the infrastructure sector, will be completed in the coming fiscal year,” the budget statement for the fiscal year 2017-18 said.

In line with the government’s plan to open the mega bank, NRB called interested parties to submit applications by issuing the Licensing Policy for Infrastructure Development Bank 2017 last year. As per NRB rules, the IDB will operate according to the Banks and Financial Institutions Act (Bafia).

In response to NRB’s call, Emerging Nepal submitted an application to establish an infrastructure bank on August 30. The company has a joint investment of 40 Nepali promoters including five commercial banks, a number of insurance companies and corporate houses.

The government and promoters will hold 10 and 50 percent of the shares respectively. The IDB will make an initial public offering to raise the remaining 40 percent of the capital. Former chief secretary Bimal Koirala has been named the chairman of the proposed bank.

Paudel said NRB could issue permits to open similar infrastructure development banks to other interested parties if the fulfil the necessary requirements. Foreign investors are also allowed to make investments in such banks.